1. LEPELLE NORTHERN WATER BOARD ANNUAL REPORT 2017/18
12 March 2019

2. Contents ANNUAL REPORT 2017/18
Part 1: Overview of financial performance
Part 2: Overview of non-financial performance

3. annual report 2017/18 Part 1: overview of financial performance

4. FINANCIAL PERFORMANCE
FINANCIAL PERFORMANCE as at 31 June 2018
Audited outcome
2017/18
2016/17
% variance
Revenue from exchange transactions R R
14%
Cost of sales
(R )
(R )
-23%
Gross profit R R
6 %
Other income
R66 706 R
-37%
Operating expenses
(R )
(R )
4 %
Net operating deficit
(R30 013)
(R )
-19 %
Interest Revenue
R4 804
R6 609
-27%
Fair value adjustments
R6 451
R 623
935%
Finance cost
(R6 780)
(R6 066)
-12%
Deficit for the year
(R27 241)
(R17 197)
-58 %

5. STATEMENT OF FINANCIAL POSITION
2018
2017
% Variance
Current Assets R R
-9%
Inventories
R8 886
R 6 097
46 %
Receivables from exchange transactions R R 1%
VAT receivable
R45 353
R40 065
13 %
Cash and cash equivalents
R37 090 R
-76%
Non –current assets R R
-1%
PPE R R
-1 %
Other financial assets
R78 476 R 9%
TOTAL ASSETS
-3.39%
Current Liabilities R R
-19 %
Payables R R
-16%
Provisions
R18 339
R20 124
-10%
Non current Liabilities
R77 382 R
Accumulated surplus R R

6. Ratios 2018 2017 Gross Profit Margin 48% 52% Current ratio 1.7 1.5
Assets turnover
18%
15%
Average water tariff
6.06
5.52
Debtors days
492
554
Cash ratio
0.1
0.2
The Gross profit margin decrease to 48% during the year under review.
Collection of outstanding debt still remain a challenge due to non- payments of account by WSA and DWS
The cash flow projection made until June 2019 reflects a cash balance of R80m. These is achievable as a results of the organisation appetite to reduce cost and collect all outstanding debt. Implementation of strategies that are geared towards safeguarding of the safety margin of 1.2 liquidity status on a month to month basis

7. Expenditure outcome: 31 June 2017
Programme
Budget
Expenditure
% var
Administration R R
-2%
Compensation of employees
35%
Goods & services on operating expenses
65%
Analysis of current payments
Over expenditure of 2% due to increase in cost of sales which is mainly attributed from the electricity cost
35% of the cost attributed to employee cost

8. Irregular and Unauthorised expenditure
DESCRIPTION
2016/17
2017/18
Variance
% Variance
R'000
Unauthorised expenditure
0.00 0%
Irregular expenditure
R21 175 R
R10 038
47%
0% overspend
0% not within purpose of vote

9. Irregular expenditure
Extension of expired contract
Non-compliance with panel selection criteria
Deviations not in line with treasury guidelines
Non-compliance with local content treasury procurement guideline

10. Fruitless and wasteful expenditure
2017/18
2016/17
R'000
Opening balance
383 36
Fruitless and wasteful expenditure – relating to current year
2 071
347
Fruitless and wasteful expenditure awaiting resolution
0.00
Recovery
Closing Balance
2 454

11. Reduction of fruitless & wasteful expenditure
Late payments to suppliers mainly SARS resulted in
Interest and penalties.
This is a results of cash flow constraints because of significant portion of debtors not settling their accounts timely as well as pre funding of projects implemented on behalf of DWS.

12. Commitment analysis

13. Accruals 30 days 30 days + Total Goods and services 445 0.00
Capital Assets

14. CONTIGENT LIABILITIES AND ASSETS
A claim of R was received for alleged damages to the claimant`s house flooded due to underground pipe burst
A service provider was ordered to pay R due to loss of assets
A claim of R2.5m from land claim commissioner on a farm subjected to land claim
A claim of R2.8 from service provider resulting from contractual obligation
Contingent Liabilities
Contingent assets

15. Analysis: matters relating the audit report per year
2013/14
2014/15
2015/16
2016/17
2017/18
Unqualified
Qualified
The accounting authority did not take effective steps to collect all money due to the Lepelle Northern Water, as required in terms of section 51(1)(b)(i) of the PFMA, as 80% of total accounts receivable was provided as doubtful debt.
The accounting authority did not take effective steps to ensure infrastructure assets are unbundled in order to depreciate them separately

16. Trend analysis: Matters related to audit report

17. Comparative analysis Findings per component 2013/14 2014/15 2015/16
2016/17
2017/18
Financial accounting 4 6 16 20 19
SCM 2 1 7 5 HR 3
Governance 17 15 IT 14 10 35 59 51

18. Action plan Major Finding Root Cause Action
Assets register was not unbundled as per standards
The exercise already started , however, could not be finalized within a year
A service provider has been appointed to assist with the exercise
Performance information did not meet the SMART criteria for certain objectives
The entity didn`t have a guiding tool that clearly defined its objectives and measurements
A guiding tool has been developed
Poor Payment history of debtors
Non Payment of outstanding debt by WSA and DWS
Continuous engagement are happening with respective municipalities in an attempt to improve collection
No processes to avoid or detect irregular , wasteful and fruitless expenditure
Lack of understanding on SCM processes with respect to Deviation procedure
The board is improving on SCM processes and has conducted SCM training through National Treasury

19. Part 2: OVERVIEW OF NON- FINANCIAL PERFORMANCE

20. Milestones that were not achieved Comments on deviations
Explanatory notes
PPI no
Milestones that were not achieved
Comments on deviations 1
Tolerable organisational Residual Risk
Certain risks identified during the review required budget and was not available at the point in time but allocated for next financial year. 2
Capital projects (Internal & Directives)
Financial constraints negatively affected the rollout of the capital projects.
Directives that were not funded 3
Debtors day (492)
Mopani’s and DWS old debt still a challenge 4
Water Quality
Changes in the chemical composition of raw water – working with Tshwane University Technology (TUT) to resolve the challenges. 5
Wastewater Quality
All the infrastructure has reached design capacity & the municipality concerned continually engaged to approve the budget for upgrading the treatment plants.
Strategy to overcome under performance
PPI no 1 on attendance of planned training : The strategy to overcome under performance will be to develop a pre-selection of institutions to ensure that training works better.
PPI no 2 on vacancy rate for engineers and scientists:
PPI no 5b on expenditure of departmental budget:
PPI no 6 internal audit plan:

21. Construction progress
LNW INTERNAL PROJECTS
Project
Summary scope
Design Progress
Construction progress
Completion date
UPGRADING OF FLAG BOSHIELO WATER SCHEMES
Upgrading of the Flag Boshileo WTP from 8Ml/day to 16Ml/day and refurbishment of the existing plant.
100%
14% (Civil works Phase 3 contractor is progressing well.)
Electro-Mech Works Phase 2 (89% completed)
High lift Phase 1(100% completed
June 2020
UPGRADE OF OLIFANTSPOORT AND EBENEZER SCHEMES
Upgrade and refurbishment of the schemes
95% (Olifantspoort 10Ml/day packaged plant)
53% (Olifantspoort Specon Pipeline Replacement Phase 1)
June 2019
POLITSI WATER SCHEME UPGRADE – POLITSI ELECTRICAL AND MECHAICAL WORKS
Upgrade of the Pump Station at Politsi Plant
100% (Package plant)
5% (Phase 2 - raw water pipeline (Terminated)
0% (Phase 3 - rising main pipeline (Suspended)
Phase 4 - HLPS: mechanical, electrical, control and instrumentation
Await resolution on the license dispute.

22. DWS INTERVENTION PROJECTS
Summary scope
Design Progress
Construction progress
Completion date
PIPELINE (NANDONI- NSAMI PROJECT)
Construction of the pipeline from Nandoni to Nsami
100%
23% (12.35km pipeline laid to date)
October (subject to funding availability)
GIYANI INTERVENTION

23. WATER TARIFF 2019/20 Consultation process
Increase in raw water costs by the Department of Water and sanitation of 14.4%
Increase in purification costs relating to contractual annual increase by 5.3%
Increase in electricity costs as proposed by Eskom to the national energy regulator (Electricity not solely from Eskom, also Municipalities by 15%
Fixed costs anticipated to increase by 6.5%
In consideration for affordability and ability of the consumer to pay, the proposed increase will maintain sustainability of the water board
Consultation with all WSA were held during the month of November 2018
Inputs and comments on the tariffs were receive from SALGA , National Treasury and WSA
response on comments were made to all respective stakeholders mentioned above
The 2019/20 tariff proposal documents was submitted to DWS for finalization of the process
Concerns on increased water tariff were raised by all WSA during consultation
Factors considered in the proposed tariff increase
Consultation process

24. Proposed tariff (R/Kl) Scheme 2017/18 Audited outcome 2018/19 Current
TARIFF SUMMARY
(R/Kl)
Scheme
2017/18 Audited outcome
2018/ Current
tariff
2019/20 Proposed
2020/21 proposed tariff
2020/22 proposed tariff
Percentage Increase
8.5% 8%
Capricorn & Polokwane Muicipality - Olifantspoort
6.86
7.42
8.05
8.74
9.48
Polokwane Municipality - Ebenezer scheme
Mogalakwena Municipality - Doorndraai
6.75
7.29
7.91
8.58
9.31
Mopani DM - Politsi
6.93
7.49
8.12
8.77
Mopani DM - Phalaborwa
4.25
4.58
4.97
5.40
5.86
Mopani DM - Modjadji
5.82
6.29
6.82
7.37
7.96
Mopani DM - Nkowankowa
4.40
4.75
5.16
5.59
6.07
Sekhukhune DM - Flag Boshielo
7.46
8.06
8.75
9.49
10.30
Sekhukhune DM - Burgersfort
6.48
7.00
7.59
8.20
8.85
Sekhukhune DM - Marble Hall
7.45
8.73
9.43
10.19
Sekhukhune DM - Steelpoort WTW
8.24
8.94
Sekhukhune DM - Malekane
5.34
5.77
6.26
6.76
7.30
Sekhukhune DM - Nkadimeng
Vhembe - Nandoni
7.31
7.90
5.10
5.51
5.95

25. THANK YOU